Virtual Server Farm in a Box

Microsoft is planting the seeds for
the future of Windows Datacenter Server, by taking an innovative approach to virtualization.

Virtualization is tricky for Microsoft. The technology is loaded with possibilities, yet most of them undercut the revenue structure of Microsoft's Windows Server licenses. Now Microsoft has announced a virtualization-friendly licensing plan that could make
the niche Windows Datacenter
Server product a centerpiece of
forward-thinking enterprises.

The question is, did the company go far enough?

Microsoft made two decisions affecting Datacenter. First, customers will be allowed to buy one license for Windows "Longhorn" Datacenter Server (scheduled for 2007) and run as many virtual Windows machines as they wish inside that box, at no additional cost. If your server can support 100 virtual machines, you can run 100 copies of Windows Server on top of Datacenter Server for nothing beyond the cost of the Datacenter Server license. The consolidation possibilities alone are huge. (A key point here is that this is a rights issue, not a technology question. Customers could use VMware or other third-party virtualization product on Datacenter Server to handle the virtualization.)

Second, Microsoft has revamped image licensing. "Today, the way that customers license Windows Server is at install. We're shifting that model to be focused on running instance," says Bob Kelly, general manager of infrastructure marketing for Microsoft's Windows Server System Group. For example, today if you have seven physical boxes and 100 images stored on the network you pay for 107 licenses. With the licensing shift, the customer pays for seven licenses—the images running on physical boxes.

"In the Longhorn wave, the scenarios you should think about are a customer who wants to have a dynamic data center and who wants to ensure that they can move virtual machines around without limits. Without having to manage that, and say four copies on this machine, six copies on that machine," Kelly says. "As a result of that, we definitely anticipate more customers buying Datacenter Server."

Virtualization Market Stats

IDC released a report recently on virtualization. The research firm found:

More than three-quarters of companies with 500+ employees are deploying virtual servers.

More than 50 percent of all virtual servers run production-level applications.

IBM S390, IBM OS400 and Unix systems account for the bulk of current spending on virtualized servers.

Rapid growth is occurring on Windows and Linux servers, especially in the 2 to 4 processor x86 space.

These changes remove licensing concerns as a key limiting factor in virtualization deployments.

IDC analyst Al Gillen sees value for IT departments in the plan, especially when it is combined with powerful x86-64 systems hitting the market. "The real value for customers is they can buy a big x86-64 system and buy Datacenter Server and put it together."

Using the math from the example above, Microsoft would clearly prefer to have the revenues of 107 licenses rather than seven. Microsoft's Kelly says the company sees opportunity for growth in virtualization and is moving early to make decisions clearer for customers. "There's a transparency issue with customers. As customers look at technologies like this and they move out of test and development, it's extremely important to be predictable with your customer. Getting in front of it is a core
part of our strategy," he says.

According to Dan Kusnetzky, a
vice president at IDC, Microsoft
is striking a balance between old licensing models and new: "Microsoft is still not leading the field in its thinking, it's just one of the first to present its thinking publicly."

Rob Enderle, principal analyst
with Enderle Associates, agrees that Microsoft is ahead of proprietary vendors in laying out the roadmap. "A lot of the Linux stuff in this space is essentially free, but from a proprietary license perspective they do appear to be ahead of folks like IBM, Oracle and Sun."

Windows Server 2003 Enterprise Edition R2

You don't have to wait for Windows "Longhorn" Datacenter Server to start running free virtual copies of Windows.

Effective this month with the release of Windows Server 2003 R2, Microsoft will allow you to run up to four guest virtual machines on one host copy of the Enterprise Edition without paying for additional Windows licenses.

Bob Kelly, general manager, infrastructure marketing for Windows Server System Group, sees enormous value in the ability to have a host and four additional virtual machines. "In today's licensing, that's about $20,000. In licensing that comes with R2, that's $4,000," Kelly says.

Of course, that assumes you'd be running the equivalent of five copies of Windows Server 2003 Enterprise Edition. IDC analyst Al Gillen says the cost benefits run a little tighter with more typical workloads, which involve Enterprise Edition as the host and Standard Editions as the guests.

"You're going to find, according to Microsoft, the cost of purchasing the Enterprise Edition is going to be less than purchasing four copies of Standard Edition. It's a benefit for customers who need four copies of Standard Edition. If they only need three, they might be at a break-even point," Gillen says.

— S.B.

Enderle also doesn't see a major problem for Microsoft in lost server license revenues. "Keeping it simple and tying the price to a higher customer value—so the customer feels they are getting a good deal—is generally the best path to long term profitability and growth," says Enderle, noting that Microsoft could go further to simplify usage licensing.

What Microsoft hasn't laid out is the packaging for Windows Longhorn Datacenter Server. Windows Datacenter Server 2000 and Windows Server 2003 Datacenter Edition were sold exclusively as part of complete systems. Packaging the OS with an eight-processor or larger server from a major OEM like Unisys, HP or IBM ensured that the companies could guarantee high availability and scalability. But it also means Datacenter Server pricing is a mystery, the OS is only available for a premium and it must be bought with high-end systems with their own high-end prices.

"If you don't mind buying a big Unisys system, you can get unlimited virtualization. But for a customer that is looking for unlimited virtualiza-tion for consolidating costs, I
believe that Microsoft is going to
go forward with some kind of
packaged SKU," says IDC's Gillen. "Maybe Microsoft will not issue a retail box of Datacenter Server. Then this is all an academic discussion."